Arabtec Share-Price Tumble Reflects Ownership Concerns?

It’s not surprising for a company to react if its stock price tumbles more than 24% in three sessions: Arabtec Holding, which was recently included in MSCI’s emerging markets index, early Wednesday said “rumors” about the company’s future plans should not affect investors and shareholders’ confidence in the company.

Chief Executive Hasan Ismaik noted that Arabtec was “determined to continue with its ambitious drive to become one of the top 10 global firms by 2018, on the back of solid financial position, strong performance, diverse backlog, and high growth potentials”, but the U.A.E.-based construction company didn’t say what rumors it was talking about that could be responsible for the recent share-price rout.

Again, not surprisingly, investors sent Arabtec’s shares another 8% lower on Wednesday to end the session at AED4.50. Obviously, the company’s attempt to bolster market sentiment for its stock didn’t quite work as would have been expected.

“The [market] rumors circulating about Aabar selling down its stake in the company has had a big impact on the share price,” said Allen Sandeep, the director of research for Naeem Holding. “With speculation running high among investors that, if this is true, then would it lead to execution risks on the memorandum of understandings [on account of a perceived erosion in price bargaining power].”

“On the other end, with the CEO Hasan Ismaik having increased his stake in the company by 20.81 percentage points to 28.84% in recent weeks, this raised speculation as to who the seller was,” Mr. Sandeep added, while himself refusing to speculate on any of the rumors.

In a regulatory filing posted on its website after the close of trading on Wednesday, the Dubai bourse said Aabar’s total shareholding in Arabtec has dropped to 18.85% from 21.57% as on Sunday, June 8.

Abu Dhabi government-owned Aabar is seen as a key factor in Arabtec’s recent order wins, including multi-billion MOUs in the U.A.E. and Egypt. Any change in Aabar’s support could potentially have execution risks for the company’s more than AED200 billion order book.

A Dubai-based analyst, who declined to be identified, said it’s difficult to have a view on a stock whose wide swings in price don’t seem to be based on fundamental factors like revenue and project execution.

Arabtec shares rallied to hit a multi-year high of AED7.4 on May 14, but have fallen some 33% this month since the company disclosed that its CEO has substantially raised its stake in Arabtec.

Profit taking on the stock is also to be blamed, further accentuated by margin calls triggered by the sharp unwinding, according to some traders.

Arabtec shares could still bounce back, but, eventually, greater transparency on company ownership would likely be the biggest confidence booster for investors.